Economic Ideas and the Political Construction of the Financial Crash of 2008

This article is a short introduction to a special section on economic ideas and the political construction of the financial crash. It begins by explaining why economic ideas and the politics of appeals to certain ideas are so integral to the historical significance of the crash of 2008 and the question of whether it can be considered a crisis at all. The first section covers the literature on ideas and economic crisis. The second section highlights that the contribution of the special section is to engage in a stock-taking exercise of the empirical and conceptual patterns concerning the politics of ideational change underway in the areas of: comparative fiscal policy; monetary policy and Euro zone debt management; capital controls; and financial and securities market regulation and standard setting. The final section outlines the structure and content of the contents of the section articles.

Economic crises are social and political events, as much as they are economic or financial ones. For both empirical and conceptual reasons, the fields of political science and political economy have come to associate periods of financial and economic distress with far reaching change in salient economic ideas (Hall 1993; Hay 1996; Blyth 2002) For example, ideational change during the 1930s laid the foundations for the emergence of the Keynesian welfare state and what came to be known as the Bretton Woods order of embedded liberalism (Ruggie 1982; Helleiner 1996; Blyth 2002; Kirshner 2014). In the 1970s more market-based policy ideas began to dislodge Keynesian approaches to macroeconomic policy, as monetarism became the first iteration of neoliberalism (Hall 1993). Ideational change and the appeals to and the use of economic ideas by policy makers are integral to how periods of crises are politically constructed and socially understood. This is the fundamental question of how we define and understand a period of crisis and indeed whether a period of economic and financial distress can be considered a crisis at all (Hay 2011). Such a question relates to the etymological origins of crisis as a critical turning point, producing a trajectory change, in accordance with the original ancient Greek medical meaning of the term, where a patient either recovers from a condition, or withers to death (Widmaier et al. 2007; Gamble 2009; Hay 2011). For a crisis to be considered and classified as a crisis by this reading therefore, far-reaching ideational change which changes both the trajectory of state intervention in and engagement with markets and the whole mental context of governing and imagining the economy, would appear to be a necessity.

Economic ideas represent systems of thought consisting of a series of interconnected claims and assumptions about how economies function, how their constituent parts should and do relate to one another, and the most appropriate objectives and settings of government economic policy. Changes in these systems of thought make a major difference in terms of policy and distributional outcomes. Economic openness and the organization of markets come in many forms and their impact is far from politically or socially neutral. Economic ideas can thus be conceived of as intellectual blueprints for sets of actually institutionalised economic relationships, and as such they are both a political resource and the subject of political contestation (Blyth 2002). Consequently, economic ideas should be acknowledged as being heavily normative, even if often only implicitly so. They carry with them implications for growth, wealth distribution, social inequalities, and for the broader policy framework that accompanies economic adjustment processes such as welfare compensation. Economic ideas require political underpinnings and thus often herald new coalitions of socio-economic constituencies as well as new forms of policy legitimation (Hall 1993; Schmidt 2008, 2014). Economic ideas are thus crucial in shaping and defining the architecture, parameters and infrastructure of politics, informing political identity and a sense of the politically possible and appropriate.

Earlier instances of ideational change shaped the parameters of politics itself and reconfigured the role the state played in the economy and society more broadly (Blyth 2002). Crises may therefore give rise to processes of change and periodic reconfigurations of capitalism, driven by changes in the ideas policy makers employ in understanding the economy and in illuminating and justifying appropriate courses of action. An important task for political science in advancing analysis of the financial and economic distress that has unfolded since 2008, is to examine the political and institutional use of economic ideas in constructing those events and in changing the range of available appropriate policy options, as well as the politics this entails.

Few doubted the need for policy reform in the immediate aftermath of the crisis, and major change would seem a natural expectation for the public and policymakers alike. Yet far-reaching reform implies the redefinition of both the goals and instruments of economic governance. To what extent has the crisis disturbed ‘old’ ways of addressing economic policy problems and goals? Are genuine new departures observable, and based on what sorts of new ideational configurations? For whom and for what purpose? These questions and how and whether the use of economic ideas has changed since the crisis, including how we explain these patterns, are the focus of the following special section.